Road To Hellth

Oct
19

Mass Mandates Round 2 – Part II

A few weeks ago (how time flies!), we set out to explore the various elements and implications of the newest addition to the state laws governing the delivery of healthcare in Massachusetts: “An Act improving the quality of health care and reducing costs through increased transparency, efficiency and innovation”, and officially identified by the rather more prosaic name of “Chapter 224 of the Acts of 2012”.

We had gone to some lengths to condense the most notable of these 349 pages of new rules and regulations into a PDF document just 39 pages long. Combined with the Massachusetts healthcare laws originally passed under Governor Mitt Romney, and then substantially modified by the Democratic Party-controlled state legislature and Romney’s Democratic successor Gov. Deval Patrick, these laws essentially allow the state government to dictate just about anything and everything about the way healthcare is provided in that fair Commonwealth. Because of this, we have dubbed them “The Mass Mandates”.

Now one might think that the prolonged interval since our last post would have been more enough time for our distinguished readers to review the entire content of Chapter 224, or at least our 39-page condensate. However we’re willing to bet that few, if any, of you did so. After all, most of you have real lives. So in this post we’ll look at some of the specific provision and their implications. Doing so is important because under the second Obama Administration, the “ObamaCare” Affordable Care Act is quite likely to continue to ape the approach taken in Massachusetts. Why? Because the Democratic Party-controlled Massachusetts legislature, Governor Patrick and the Obama Administration share a common perspective with respect to what ails the U.S. healthcare system and how to fix it. (For the definitive work describing this perspective and its implications, we highly recommend the new book by Dr. Richard Fogoros, Open Wide and Say Moo! More on that in an upcoming post…)

So let’s go ahead and see what Massachusetts is mandating now.

The first thing that one notices about the new Mass Mandates is its naked honesty: the government of the Bay State is well on the way to taking complete control of its healthcare system. No more pussyfooting around. No more qualms about “creeping socialism” (or even “leaping socialism” for that matter). No more apologies or half-measures. Private enterprise may technically own the resources used to deliver healthcare services, but government entities will increasingly dictate whether, when, where and how they are to be deployed.

The quite visible hand of Massachusetts state government has been authorized to stick its fingers into just about every aspect of medicine, apparently regardless of who is asking – and paying for – the goods and services rendered. The ways in which it goes about doing this amount to a veritable laundry list of new rules, regulations and regulatory bodies. That’s one reason the text of the bill that was passed into runs to 349 pages.

Let’s go through a number of them individually.

The Health Planning Council

This very-high-level group is located within the state executive office of health and human services. It consists of:

The state secretary of health and human services (or designee) who is the chairperson

The commissioner of public health (or designee)

The director of the office of Medicaid (or designee)

The commissioner of mental health (or designee)

The secretary of elder affairs (or designee)

The executive director of the center for health information and analysis (or designee)

The executive director of the health policy commission (or designee), and

3 members appointed by the governor: a health economist, a health policy planner, and a health care market planner/service line analyst

The very first thing the Health Planning Council will do is to form an advisory committee that is supposed to “reflect a broad distribution of diverse perspectives on the health care system.” The second is to create a comprehensive “state health plan” that is intended to keep track of, well, everything:

The state health plan developed by the council shall include the location, distribution and nature of all health care resources in the commonwealth and shall establish and maintain on a current basis an inventory of all such resources together with all other reasonably pertinent information concerning such resources. For purposes of this section, a health care resource shall include any resource, whether personal or institutional in nature and whether owned or operated by any person, the commonwealth or political subdivision thereof, the principal purpose of which is to provide, or facilitate the provision of, services for the prevention, detection, diagnosis or treatment of those physical and mental conditions experienced by humans which usually are the result of, or result in, disease, injury, deformity or pain…

(d) The department may require health care resources to provide information for the purposes of this section and may prescribe by regulation uniform reporting requirements. In prescribing such regulations the department shall strive to make any reports required under this section of mutual benefit to those providing, as well as, those using such information and shall avoid placing any burdens on such providers which are not reasonably necessary to accomplish this section. Agencies of the commonwealth which collect cost or other data concerning health care resources shall cooperate with the department in coordinating such data with information collected under this section.

That’s right. From the lowliest medical assistant to the most sophisticated gamma knife, the Health Planning Council wants to know about anything and everything that has anything to do with the provision of healthcare within the state. Think about that for a minute; about how massive and intrusive and expensive and permanent just this one first provision of the Mass Mandates law happens to be. Every single hospital, clinic, nursing home, imaging center, (and maybe even 24 hour fitness center depending upon how the Health Planning Council wants to define its regulations) will need to report whatever the Council decides it needs to report. How detailed do these reports have to be? It’s completely up to the discretion of the Council. How many square feet is your facility? What pieces of equipment does it have, including make, model and year of manufacture? How many people do you employ, and what are their names and job titles? What is their training? Are they certified, and if so in what and by whom? How many computers do you have? What software are you using for EMR, CPOE, lab orders and billing? Anyone who has ever had to deal with the Internal Revenue Service, the EPA, OSHA or federal securities laws will recognize the sinking feeling that accompanies these sorts of requests for information. Whether it’s really “important” or “necessary” is a matter of opinion; in this case the opinion of members of the state Health Council.

Of course the Health Council’s database will be useless unless it’s maintained and up-to-date, which means that all of this information will need to be updated and re-submitted every year. Otherwise it wouldn’t be of any practical use. One immediate result is going to be a substantial increase in the administrative overhead faced by very healthcare facility in the state, along with a corresponding increase in their cost of doing business. This new cost will be incurred without delivering one iota of actual healthcare goods or services to anyone, anywhere in the state. By definition, the Council’s first act will be to lower the productivity of the healthcare system in Massachusetts. (Productivity is defined as the number of units of input (e.g., dollars), required to produce a unit of output (e.g., number of patients cared for).

Why would they want to do this?

The rationale offered by the law is that all of this information will assist the Council in “making determinations of need”. When it comes to healthcare, determining need is not just about what community needs a new clinic or a new MRI machine, but it’s also a tool that allows regulators to block the introduction of new medical resources into any community where they do not wish them to go. The reasoning is that the availability of facilities will cause them to be used, thus increasing the total cost of healthcare.

But lots of states and municipalities make determinations of need just fine every day without demanding this level of detailed reporting from every healthcare establishment in the state, much less doing so in perpetuity.

The only rational explanation for establishing this database is if the Health Council (or its surrogates) intends to insert itself more forcefully into the operational details of delivering medical care. While some readers might think that we’re being alarmist by simply mentioning the possibility of direct government control of – or at least interference in – the makeup and operation of even private medical facilities, the rest of the law seems to support the idea. Indeed, there seems to be no question that the government of Massachusetts is getting into the business of telling doctors and patients exactly what they’re expected to do, how, and when. Let’s let the law speak for itself.

The very next entity created by Mass Mandates 2 is the Health Policy Commission. This commission “shall be an independent public entity not subject to the supervision and control of any other executive office, department, commission, board, bureau, agency or political subdivision of the commonwealth.” In other words, it’s not answerable to anyone. The commission is governed by a board of eleven appointed people, including the secretary of health and human services, the secretary for administration and finance, and nine other health care policy and finance “experts” appointed by the governor, the attorney general and the state auditor. Only one doctor is allowed on the board: a primary care physician. (Medical specialists need not apply regardless of their qualifications.) An equal number of board members (i.e., one) shall be appointed to represent the interests of labor unions. Just to make sure that no one thinks that this commission can do pretty much anything it wants without having to answer to anyone, the law is explicit:

(d) Any action of the commission may take effect immediately and need not be published or posted unless otherwise provided by law.

The executive director may appoint other officers and employees of the commission necessary to the functioning of the commission.

The executive director shall not be required to obtain the approval of any other executive agency in connection with appointment of employees.

The money used to finance the commission and its activities is going to be coughed up by the very people and organizations that it intends to regulate:

Each acute hospital, ambulatory surgical center and surcharge payor shall pay to the commonwealth an amount for the estimated expenses of the commission.

One of the primary missions of the Health Policy Commission is to strictly regulate the cost of all healthcare goods and services provided by any organization providing a significant amount of healthcare goods and services to the public, regardless of who is paying for it. This is done by fining hospitals and clinics if the total dollar value of the goods and services that they provide increases faster than an arbitrary amount specified by the law – initially the rate of growth of state GDP, then less than the increase in GDP, followed by whatever limits might be set at the whim of the commission. Penalties for missing the targets will apply to groups and hospitals with more than $25 million in gross revenue; about a medium-sized group practice. The penalty? Initially it’s having to come up with a plan for coming into compliance, but if that doesn’t work (or the commission decides that it wasn’t good enough) providers can be fined a civil penalty of up to $500,000.

One interesting attribute of this regulation is that the government is imposing these regulations and penalties not based upon the cost of any particular item, nor based upon the inappropriate utilization of healthcare services, but based upon the change in cumulative total healthcare expenditures. There are many reasons why the total costs incurred by any particular healthcare institution or provider might rise at a rate greater than state GDP. The provider in question might, for example, experience increases in the cost of the medications or other supplies that it needs to treat patients. Or it might experience an increase in the number of older, sicker patients treated. Or it might even experience substantial cost overruns in government-mandated expenses such as electronic medical record systems or the administrative overhead needed to comply with new reporting requirements and try to raise prices to recoup the cost before going bankrupt. (Or even the new mandatory fees incurred to pay for the activities of the Health Policy Commission itself.) It really doesn’t matter. According to the law, the commission is obligated to crack down on sources of “excess” spending and bring them back into line with politically “acceptable” norms.

While it certainly sounds nice to say (as the law does) that the cost reductions will be managed by increasing “efficiency”, government management of healthcare almost universally works in the opposite direction. Since the same regulators imposing cost restriction have said that “quality” and “patient satisfaction” must not suffer at the hands of cost cutting, clinicians are presented with an impossible situation. How can you deliver friendly, “hands on” service if you’re required by law to be glued to a computer screen? How can one provide better clinical care if newer, more effective (but also more expensive) medications are denied a place in cost-conscious formularies? How is it sustainable for clinicians be held responsible for the total cost of care, when patients are under no obligation to take the medications or other treatments prescribed, or even take the most basic responsibility for their own care?

It is very, very difficult to see how these sorts hard-and-fast, yet mutually exclusive requirements can possibly be compatible with an effective and sustainable healthcare system. However they are perfectly in line with fostering an ineffective and unsustainable one.

We’ve only begun to scratch the surface of what’s required by the brave new world of Mass Mandates 2. There is LOTS more to come. The journey will continue in our next post on the topic.

Categories : Business and Law, Clinical Care, Economics, Healthcare Policy, Hospitals and Health Systems, Political Hellth, Politics, PPACA

Aug
20

Mass Mandates Round 2 – Part I

by Dr. Doug Perednia

In 2006, the Massachusetts legislature passed “The Massachusetts Mandated Health Insurance Law”, which was signed by then-Governor Mitt Romney. As most of our readers undoubtedly know, this law subsequently served as the model for the Affordable Care Act (ACA). The ACA is now popularly known and widely referred to as ObamaCare.

While the 2006 Massachusetts law has been labeled “RomneyCare” by many people, it’s not at all clear that that is an honest label. As described by Avik Roy in his The Apothecary blog, although Governor Romney signed the bill, he wanted it to apply only to catastrophic coverage and specifically vetoed several of its key provisions, including an employer mandate forcing companies with more than 10 employees to provide them with health insurance or pay fines. These vetoes were immediately overridden by the Democratic legislature, and it fell to Romney’s Democratic successor Gov. Deval Patrick to implement and modify the provisions of the law in a way that set the final example for ObamaCare. As it happens, Governor Patrick is a prominent figure in President Obama’s re-election campaign, and the two appear to see eye-to-eye on how healthcare should be implemented and regulated in this country. It might therefore be more accurate if we referred to the state of Massachusetts’ approach to healthcare by a more generic label such as “The Mass Mandates”. For when you come right down to it, the Massachusetts approach mostly consists of a large series of mandates: mandates to individuals and businesses to buy insurance for yourself or others, mandates to insurers to provide unlimited insurance coverage wherever and whenever it is desired, and mandates to healthcare providers to do whatever is asked of them regardless of whether it’s profitable or not.

While The Mass Mandates have produced the highest rate of health insurance coverage in the nation (some 98% of Massachusetts residents are covered by some form of health insurance), like ObamaCare the original law deliberately did nothing to reduce costs or the incentives to spend more for healthcare, even as it broadened the pool of people capable of making claims upon the system. One predictable result has been an explosion in healthcare costs and spending within the state. Massachusetts has among the highest health insurance premiums in the country. As recently described by an article in the New England Journal of Medicine:

Massachusetts spent more than $61 billion on health care in 2009, a figure that places it among the highest-spending states in the country. In the past 5 years, growth in health care spending has consistently exceeded economic growth, resulting in challenges both for lawmakers dealing with a constrained state budget and individuals required to purchase coverage privately. In fiscal year 2012, health care will consume 54% of the state’s budget, up from 49% in fiscal year 2009, with the bulk going toward Mass Health (Medicaid) and individual subsidies for purchasing health insurance. For individuals, monthly premiums for a minimal (“bronze”) plan purchased through the Commonwealth Choice connector (the state insurance exchange) increased from about $175 in 2007 to $275 in 2012 (a 57% increase), despite slowed growth in overall health care spending since the start of the recession in 2008.

One might add that there have been other adverse consequences as well. According to an annual survey by the Massachusetts Medical Society, the waiting time needed to see a family physician has been rising steadily – from 29 days in 200 to 36 days in 2011 to 45 days in 2012. About half of internists and family practitioners are not taking new patients.

Of course, if the original Mass Mandates law had done something about healthcare spending at the time that it was proposed, it probably would have sparked so many objections that it never would have been passed by the legislature. Voters like healthcare coverage – especially if someone else is paying for it – but they get cranky when you tell them that there will be some sort of limitations on their coverage such as overt rationing, not being able to see a doctor they like within a reasonable period of time, or formulary lists filled with cheap and relatively ineffective second or third-line drugs. As a result, it has taken until this summer for the other shoe to drop, and for Phase II of the Mass Mandates to take place. For on August 6^th of this year, Governor Patrick signed a new law that shows how the next phase of ObamaCare is likely to play out if the current administration continues to hold the keys to the American healthcare system after the November 2010 election.

It’s been remarkable to us that so little attention has been paid to the contents and nature of this new law (dubbed “An Act improving the quality of health care and reducing costs through increased transparency, efficiency and innovation”, and officially identified by the rather more prosaic name of “Chapter 224 of the Acts of 2012”. The passage and signing of this bill into law was something of a big deal for news outlets in Massachusetts, but more or less regarded as just a footnote in the rest of the country. But this is not just some “local yokel” healthcare initiative occurring in an out-of-the-way state. The people running this thing belong to the same political party and healthcare philosophy as the folks currently running the White House, Department of Health and Human Services, Department of Justice and the Internal Revenue Service. There is an excellent chance whatever is done in Massachusetts right now is going to be translated directly into national healthcare policy. After all, the ACA law provides the Secretary of HHS with an enormous amount of discretion as to how, where and when to implement whatever plans that (s)he may wish to put into place. And as The New York Times recently reported, many healthcare businesses seem to be betting that Mr. Obama will get his four more years.

With that in mind, we’ve recently wasted spent quite a few hours reading and trying to comprehend the new 2012 Mass Mandates that have just been signed into law. This is no trivial task. The text of the modifications that have been made run to an extraordinary 349 pages, with much of it in legalese and references to other documents that are virtually incomprehensible to the average person. Here is just a small sample:

SECTION 5. Section 16 of chapter 6A of the General Laws, as appearing in the 2010 Official Edition, is hereby amended by striking out, in line 52, the words “pursuant to section 2A of chapter 118G” and inserting in place thereof the following words:— under section 13C of chapter 118E.

SECTION 6. Section 16E of said chapter 6A is hereby repealed.

SECTION 7. Sections 16J to 16L, inclusive, of said chapter 6A are hereby repealed.

SECTION 8. Section 16M of said chapter 6A, as appearing in the 2010 Official Edition, is hereby amended by striking out, in lines 3 and 4, the words “commissioner of health care financing and policy” and inserting in place thereof the following words:- executive director of the center for health information and analysis.

In an effort to make things more comprehensible, we tried to extract from the law what seemed to be the major actions and initiatives. By simply cutting and pasting, we have created the nearby 39-page document that appears to contain the most notable parts of the legislation from the perspective of patients, providers and those who will have to pay for all of the initiatives described.

Download (PDF, 232KB)

Over the next week or so we will write more about the new Mass Mandates law in general, and some of its specific elements in particular.

Categories : Business and Law, Clinical Care, Economics, Healthcare Policy, Political Hellth, Politics, PPACA, The Practice of Medicine

Jul
4

The Tragedy of the Supreme Court’s Affordable Care Act Ruling

by Dr. Doug Perednia

The past week’s Supreme Court ruling on the constitutionality of ObamaCare is a tragedy on at least two counts. The first tragedy relates to the relationship between our Federal government and the citizens who are subject to its will. The second tragedy relates to the healthcare system itself, and affects all of us who seek, deliver and pay for care. It is hard to say which is the greater.

Let’s address the legal implications first. We are not lawyers nor do we pretend to have any special insights into law or the constitution, but some common sense conclusions are inescapable.

The first conclusion is that the law passed by the Democratic party-dominated Congress of 2010 and President Obama establishes a precedent for the taxation of any activity – or inactivity – that future legislators and Presidents deem to be undesirable. Although much has been made of the Supreme Court striking down the power of Congress to penalize the non-purchase of health insurance by use of its ability to regulate Commerce, it seems to us that this is a distinction without a difference. As written, the Affordable Care Act law says that the Federal government will impose a penalty on anyone who is uninsured. Now the law has been interpreted by the Supreme Court to impose a tax on anyone who is uninsured. If you’re in the class of individuals affected it’s pretty difficult to discern how one is any better or worse than the other.

Given this turn of events it certainly seems as if there is absolutely nothing that Congress cannot choose to tax or not tax in order to reward or punish anyone it pleases. It is now clearly within the power of Congress to support the government’s and union’s ownership of General Motors (as well as to support “green” business initiatives) by offering to tax anyone who fails to purchase a Chevy Volt. Slovenly and unsightly couch potatoes can be taxed for failing to purchase and regularly view the entire series of “Brazil Butt Lift” DVDs. The housing industry would clearly be stimulated (and thereby improve the unemployment rates nationally), by imposing a tax on anyone who does not own a home. The possibilities for social and economic engineering are unlimited. No longer does the government need to fund economic activity that it deems desirable – it can simply tax any social or economic behavior that it finds undesirable. Anyone who might doubt that this sort of thing would actually happen need only look to California for examples of publicly mandated investment. Recently the California Energy Commission mandated new standards for housing construction starting in 2014:

…including a rule that all new homes have roofs equipped for solar paneling. The panels are still optional—for now.

Other highlights: Ceiling fans, hot water pipes, air conditioning units and even the sunlight exposure from windows will now be regulated. Lighting systems must be controlled by sensors, roofs must be slanted in the right direction to have full access to the sun, and sunlight must not be impeded by chimneys and skylights…

The new rules will increase the average construction cost of a new California home by an estimated $2,300…

“So what?” many will ask. Clearly some of this has been going on for generations. Cigarettes and alcohol have been taxed for donkey’s years as a way of encouraging temperance and discouraging lung cancer and chronic obstructive pulmonary disease, and for the most part no one bats an eye.

But the Supreme Court’s decision on ObamaCare clearly enlarges the scope of behavior-based taxes beyond anything we’ve seen before. Instead of being taxed for doing something, the way is now clear to tax Americans for not doing whatever it might be that is deemed to be unpatriotic at the time.

“But wait a minute,” others will say, “This very blog has come out strongly in favor of universal healthcare coverage, and even for taxing every non-poverty-stricken American in order to help pay for it. Where is the consistency there?” A fair point, but there is a big difference in taxing people in order to help fund the delivery of a good or service that will directly benefit them, and taxing someone strictly in order to punish them economically for failing to purchase for themselves something that a politician or lobbyist deems to be desirable.

But let’s move on to the healthcare tragedy created by the Supreme Court’s ruling. What’s different today that wasn’t the case last week, last month or last year?

What’s different is that the disaster of the Affordable Care Act (ACA) is now guaranteed to continue at least until the November presidential election, and possibly for many years beyond. It has become impossible to move on. There is, at least for the next few months to years, no way of doing things right. No way to save billions of dollars in needless expenses, of improving the efficiency of care, or of insuring American’s constructively. With a stroke of Chief Justice John Roberts’ pen, the Court’s decision has made us much, much poorer – both medically and financially.

The financial loss the nation has suffered (and will continue to suffer) is hard to quantify, but is hardly abstract. The cause of this loss is simple: uncertainly.

There is certainly no need to even begin to document all of the misguided and counterproductive features of the ACA in this post. Simply search The Road to Hellth for “ACA” and you’ll find scores of examples. Still better, click on over to The Covert Rationing Blog and read Dr. Rich’s book-in-progress “Open Wide And Say Moo! – The Good Citizen’s Guide To Right Thoughts and Right Actions Under Obamacare” – a series of essays that is probably the most insightful work on the topic that exists today. But among those features are a host of provisions that practically ensure the long term failure of ObamaCare no matter what the outcome of the November election might be. These range from giving employers financial incentives to dump millions of workers onto federally subsidized insurance exchanges, to increasing the federal budget deficit by at least $500 billion over the next ten years, to increasing the cost of premiums by mandating elaborate benefits for buyers of all health insurance policies (including “bronze” plans) while simultaneously making it difficult or impossible for Americans to utilize healthcare savings accounts, to demanding that $500 billion be cut from Medicare without a corresponding reduction in benefits, to an astonishingly poorly conceived and destructive tax on the gross sales of makers of medical devices.

When something as basic and as economically important as healthcare is seen to be essentially unstable and unsustainable, rational people will defer investing in healthcare until a path to stability is clear. All sorts of decisions are put on hold. Entrepreneurs stop innovating – they have no idea whether their creations will be politically or economically practical in the future. Employers stop adding employees in order to reduce their exposure to increases in health insurance costs. Business creation goes into hibernation until long-term costs become clearer. Families defer spending. The ripple effects go well beyond healthcare into the national and world economies.

By upholding the ACA, the Supreme Court has simply delayed the ultimate failure of ObamaCare and the implementation of a better, more affordable, more efficient and sustainable healthcare system. We’re going to have to wait until our healthcare system self-destructs in order to save it.

That’s the real healthcare tragedy here.

Categories : Business and Law, Clinical Care, DAP Blog Entries, Economics, Healthcare Policy, Political Hellth, Politics, PPACA

Jun
10

Oregon’s Magical Thinking Meets CCO Reality

by Dr. Doug Perednia

In September of 2011 we wrote an article called Oregon’s Healthcare “Transformation”, about the Beaver State’s efforts to solve the problem caring for the poor (and eventually everybody) by encouraging the development of “Coordinated Care Organizations” (or “CCOs”) for Oregon’s Medicaid program. CCOs appear to literally be “Accountable Care Organizations” or “ACOs” with a different name, just as ACOs are simply Health Maintenance Organizations (HMOs) with an updated label slapped over all of the signs, advertisements and letterhead.

The underlying theory behind CCOs is that it’s not resource utilization that is causing healthcare costs to rise. Instead, all of those increasing healthcare expenses are due to the fact that care is “uncoordinated” because everyone is paid separately. Clinicians are therefore failing to address each patient’s every need at the exact time that it should be addressed, thus causing bad things to happen. It’s a bit like the proverb For Want of a Nail, but in this case it’s the absence of a single global capitated payment that is causing all of those expensive emergency rooms visits.

For want of a global capitated payment, the social worker was unhired.

For want of a social worker, the appointment was unkept.

For want of an appointment the prescription was unwritten.

For want a prescription, the medication was untaken.

For want of a medication, the illness was untreated.

For want of a treatment, the symptoms were unchecked.

For want of breath, the patient went to the ER.

All for want of a global capitated payment system.

In order to keep all of these bad things from happening, CCOs are supposed to combine the resources of an ordinary clinic with a hearty helping of social work, mental health practitioners, additional office staff, just-in-time care and the sort of love we used to expect only from our mothers:

Each Mid-County clinic team has a doctor and family nurse practitioner, each with a clinical medical assistant; a registered nurse; a team clerical assistant; and a third clinical medical assistant to track appointments, preventative measures, prescriptions and other information for team patients.

The team also has access to psychiatric nurse practitioners and social workers at the clinic. Team members work together in the same room and huddle twice a day…

When a patient like Anderson shows up, the team knows her health history, her medicines she’s taking and what tests she needs. Sometimes the team will call her in for a test. She can call the team directly and often, if needed, get in to see someone on the same day.

Of course the same type of if-only-we-had-this-everything-would-be-dandy story could easily be told for any of the many top-down trends and mandates that are currently working their way down the governmental chain of command, including electronic medical record systems, “quality” measures, pay-for-performance, recommending that people avoid screening tests and the like. The only real concerns that the public should have are: (a) whether any of these stories are true; and (b) whether the measures proposed by these distinguished academic thinkers are practical in implement in the real world.

One of those practical issues that we brought up in our previous post had to do with how it was possible to provide all of these enhanced services given the fact that Medicaid payments are already so low that they don’t even cover a clinician’s overhead costs:

So why don’t all doctors do this for their Medicaid patients? The answer, of course, is that they can’t. Medicaid doesn’t pay them enough to cover their basic overhead, let alone retain whole teams of social workers and administrative personnel. If it did, they wouldn’t have to have stopped seeing Medicaid patients in the first place. Moreover, Medicaid doesn’t pay them for many of these activities (such as coordinating with other providers), at all. And to add insult to injury, Medicaid is one of the worst of all insurers to accommodate in terms of administrative overhead. It’s not our healthcare providers who have failed these patients; it’s the insurance system that the government itself created.

All of which brings us back to the promised transformation of the Oregon Health Plan. Having essentially created the problem of underinsured patients who receive all of their care in emergency rooms, how can CCOs now succeed where the rest of OHP has failed?

The answer is money. In medical and even social terms, CCOs are nothing particularly innovative or revolutionary; they’re just clinics with more resources than their private counterparts. The real difference is that the state and federal governments are presumably making a commitment to fund them in a responsible manner. If not, they’ll be held hostage to the same unsustainable business model that has characterized the OHP for the past decade. Patients will fall through the cracks, and ER visits will once again be the norm, and the next transformation will have to come up with yet another new catch phrase.

But as the Oregon Health Authority clearly figured out, the popular appeal of a government healthcare program with a cool new name is hard to resist. Large and small hospitals, clinics and physician groups signed up for the CCO program in droves. In just over six months, dozens of different consortiums had applied to be recognized as Medicaid CCOs – many of them representing the richest, smartest and most sophisticated private health systems in the state. Eleven were immediately certified as CCOs, four were asked to resubmit their applications later, and two out-of-state publicly traded companies, Centene Corporation and United Healthcare sent letters of intent to apply for CCO status. Rumors of their participation incensed local healthcare advocates, health systems and some legislators who figured that they were going to corner this chic new market for themselves; so outsiders could just butt out. Oregonians had found the holy grail of healthcare and they were going to drink its sweet life-giving wine all by themselves.

Much of this wine happens to be provided by the Federal government in the form of a $1.9 billion Medicaid dollars and waivers that will pay for CCOs to be set up and operated over the next five years. It seems that Oregon was looking at a $600 million deficit in its own state Medicaid funding for 2013 alone and would have had to slash benefits across the board if the Federal dollars hadn’t come through. Fortunately the Oregon CCO plan forwarded by Democratic Governor John Kitzhaber fit perfectly with the ACO approach favored by the Obama administration and the Affordable Care Act, and Department of Health and Human Services Secretary Kathleen Sebelius signed off on the deal. In return “…Kitzhaber promised officials that Oregon would within two years be able to document improved health outcomes and a 2 percent reduction in overall Medicaid costs.” With the Governor’s success in bringing home the Washington bacon, the folks representing Oregon’s brand-new CCOs were ecstatic.

Well, at least until now.

It’s amazing how fast chickens can come home to roost. This week, Oregon’s new CCOs were shocked, shocked, to learn that they would not be receiving any additional money to provide all of the new “coordinated care” services that they have obligated themselves to provide. As described by The Oregonian newspaper:

Now, members of the new groups are crying foul after a directive Thursday that they’ll receive no new funds for the additional responsibilities they’ve agreed to take on — mental health care, prevention efforts, quality measurements and new patient-care staff, among others.

They say the success of the reforms is at risk because revamping the care of 600,000 people takes money.

“We’re stunned,” said Janet Meyer, interim CEO of a consortium of Portland-area hospitals and other providers called the Tri-County Medicaid Collaborative. “That wasn’t the impression we had been given throughout the process.”

But the new groups simply have to be more creative, says Oregon Health Authority Director Bruce Goldberg, who is overseeing the reforms. “There are no additional dollars,” he said…

The state asked the new care groups to submit rate requests based on their projected costs, but on Thursday informed the groups that those requests should be no greater than last year’s rate, which itself was an 11-percent cut…

The state’s mandated CCO rates — about $250 per member per month, in some cases — are about 20 percent less than what the groups requested based on costs…

The health authority’s Goldberg points out the new groups were spared the 2 percent cuts other Oregon Health Plan providers face. While he maintains that CCOs were informed that there would be no new funds, Meyer disagrees. “The (CCOs), without exception, were pretty surprised about the directive we were given yesterday.”

Having personally attended one of the lectures that Director Goldberg gave to Oregon physicians last year, we have to back him up on this one. When we directly asked him how it was anyone could possibly provide all of the additional services provided by the CCO model when clinicians couldn’t even meet overhead expenses on their Medicaid patients, he simply replied that providers “would have to get creative”. He was very careful not to promise anything.

That’s what qualifies as government leadership in healthcare reform these days: admonitions to the private sector to “get creative”, while simultaneously dictating exactly which services it is to provide, and how.

Still, it’s hard to shed a tear for Ms. Meyer and her colleagues from Tuality, Providence, Legacy, Oregon Health and Sciences University, Kaiser and Adventist health systems. They really did expect to be paid extra so that they could expand their staff, process more patients and tap into a guaranteed stream of state and federal revenue – all in the name of “saving” money for the taxpayers. No rational private-sector CEO would give a green light to a project like this unless it was expected to expand – or at least maintain – his company’s existing profit margins. It hardly matters that most of these participants are non-profit institutions; for them “non-profit” is a tax status, not a business plan. Now that the rug has been pulled out from under them, it will be fascinating to see just how creative they intend to become.

We predict that one of two things will happen. The most likely event is that the Oregon Health Authority will drastically reduce the level of goods and services that CCOs are required to provide, down to the level of, uh, well, the services that are currently provided to Medicaid recipients by everyone else. Except for having the feds cover Oregon’s budget deficit and Medicaid recipients covered by a global capitated payment to modern-day HMOs, nothing will change. The other possibility? That all of those certified CCOs will disappear faster than a government budget surplus.

Categories : Business and Law, Clinical Care, Economics, Ethics, Healthcare Policy, Hospitals and Health Systems, Overhauling Healthcare, Political Hellth, Politics

May
21

Ignoring Evidence-Based Medical Economics

by Dr. Doug Perednia

Q: How is a rat different from U.S. healthcare policy?

A: A rat learns from experience.

We were recently asked to comment on the challenge faced by the so-called “consumer owned and operated” health plans (or “CO-OPs”) created by the Affordable Care (“ObamaCare”) Act and originally funded to the tune of $6 billion dollars by U.S. taxpayers. CO-OPs are supposed to be non-profit member-controlled organizations who are entering the health insurance business for the first time, and whose profits “are required to be used to lower premiums, to improve benefits, or for other programs intended to improve the quality of health care delivered to its members.”

The CO-OP program has come under close scrutiny recently by the House Committee on Energy and Commerce, which has questioned the honesty and validity of the accounting used to finance the program and the award of grants and loans to organizations that, according to the wording in the ACA law, should not have been legally eligible to receive funding. While the Department of Health and Human Services had originally claimed that loans made to these organizations would have a 35%-40% default rate, the Appendix to the President’s most recently proposed budget reflects an expected loss rate of 91%. A major concern raised by this scenario is that many Americans would eventually be insured by CO-OP organizations that are fully expected to spend all of their Federal grants and loans and go out of business – leaving patients and their families without insurance.

Another problem posed by the committee is that, although the law specifically states that: “An organization shall not be treated as a qualified non-profit health insurance issuer if—(A) the organization or a related entity (or any predecessor of either) was a health insurance issuer on July 16, 2009; or (B) the organization is sponsored by a State or local government, any political subdivision thereof, or any instrumentality of such government or political subdivision.”, certain organizations such as the Freelancers Union already sell health insurance, but have been awarded CO-OP funding by HHS.

As reported by Kaiser Health News this past February, the administration argues that the union itself is not an insurer, despite the fact that it sells health insurance:

Republicans on the House Ways and Means Committee criticized the loans made to Freelancers Union-sponsored co-op plans, claiming they violate the law’s provisions that loans cannot be made to any pre-existing insurers or for-profit entities. They also said the Freelancers Union receives state and local government funding in New York and that the law says loan recipients can’t receive such support.

But a CMS spokesman said the Freelancers Union meets the law’s standards for a co-op plan sponsor because the union itself is nonprofit and not an insurer. A Freelancers Union spokeswoman said the co-op boards and executives are distinct and independent from the union’s board and executives, and none of the co-op entities have received state or local government funding.

But let’s put aside all of the weasel words and slick accounting for the moment. Since the Road to Hellth is paved with good intentions, is this idea of forming a bunch of non-profit insurance companies to provide competition in the individual and small business market a good idea? More importantly, is it a sound idea as passed into law by Congress and signed into law by President Obama? Especially since the taxpayers will be losing nearly $6 billion in the process?

Let’s start with the question of whether non-profit health insurers tend to have lower premiums than for-profit insurers. After all, the whole idea is to save money for the people paying the premiums. The news on this front isn’t terribly encouraging. In 1983, Adamache and Sloan compared the premiums charged by non-profit Blue Cross-Blue Shield (BCBS) health plans and their for-profit competitors, and found that non-profit status had virtually no effect on premiums or market share. But that was nearly 30 years ago. What about now? At least partly as a result of the CO-OP provision of the ACA, Leemore Dafny and Subramaniam Ramanarayanan decided to revisit the question in 2011. They did so by looking the premiums charged by non-profit BCBS companies that switched to for-profit status. The results?

Using a regression-adjusted premium index for each geographic market and year, we find that premium growth is no different, on average, in post-conversion markets versus markets not experiencing conversions. There is no difference in premium trends prior to conversions. The resulting instrumental variables estimate of the impact of FP insurer market share on premiums indicates no effect of for-profit status on premiums, on average.

Further analysis reveals the impact of BCBS conversions varied depending on the market share of the converting plan. Specifically, marketwide premiums increased when converting BCBS plans had shares in excess of ~20 percent, and decreased otherwise.

In other words, it doesn’t so much matter whether insurers are for-profit or non-profit – what really matters is whether there is true competition in the local market. Monopolies and oligopolies are bad, because they tend to increase the prices of all insurers.

If we think about these results as they pertain to the “real world”, it makes perfect sense. “Non-profit” is a tax status, not a business plan. If non-profits were to routinely charge lower premiums and provide better coverage than for-profit insurers, the latter would inevitably go out of business. But that’s not what we see in the real marketplace. Instead, for-profits and non-profits behave in essentially the same ways as businesses; only the terminology is different. While the former has “profits”, the latter has “revenues in excess of expenses”. We have personally worked with many non-profit and for-profit companies, and can personally vouch for the fact that the management of each one is equally concerned about generating more than enough revenue to cover expenses and building up surpluses to fall back on when times get tough. These observations are clearly borne out by the facts. As reported by the Seattle Times just this year, the non-profit health insurers in Washington state (which is virtually all of them), have been amassing enormous surpluses even as they’ve rushed to raise premiums in anticipation of the huge new expenses imposed by the ACA.

This business-like behavior applies even those companies that are genuine cooperatives. Late last year, the non-profit Group Health Cooperative of Eau Claire, Wisconsin asked for a 13% increase in the premiums it charged it members. When it was granted only a 1.4% increase it did what any for-profit company might have done – it dropped coverage for 10,000 state employees. Business is business. These are health insurers, not charities.

So we’ve established that non-profits do not appear to behave much differently than for-profit insurers when it comes to the cost of insurance premiums. Despite all of the hand-wringing, “profits” and “investors” by themselves really don’t enter into the cost of insurance premiums. Is there any reason to think that the new CO-OPs financed by the ACA are going to be any more successful at reducing costs than existing insurers?

The organizations applying for federal funding claim that they will be, but that’s to be expected. Like many people these days, they say that “medical homes” and “Accountable Care Organizations” (ACOs) will save the day:

Sponsors of many of the new co-op plans say they aim to encourage teams of physicians and other providers to work closely with plan members to provide coordinated – and less costly – care. That model is called the patient-centered medical home. Co-op sponsors say that unlike most existing insurers, their plans will pay providers to manage patients’ health, with a strong focus on primary care, rather than just paying for individual medical services.

“This is a new model of health insurance because of the principle of the patient-centered medical home,” said Matthew Katz, CEO of the Connecticut State Medical Society, which is co-sponsoring HealthyCT, a proposed co-op.

But let’s be realistic and look at the data, shall we? The basic principal underlying ACOs and medical homes is no different than those underlying HMOs such as Kaiser and Group Health. You have a bunch of clinicians who are basically hired hand and are supposed to pull together for the good of the collective. These types of organizations have been around for over 60 years. They have electronic medical records. They have all of the same incentives to cut costs that ACOs and medical homes do. Many would argue (us included) that for all practical purposes ACOs are nothing more than HMOs with a fancy new name. How have those business models influenced the growth of premiums?

As reported in Kaiser Health News, the cost of the insurance plans purchased by employers jumped yet again in 2011. “Exhibit B” from this report is shown below.

As you can see, premiums are pretty much the same for plans designed as health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point-of-service plans (POSs). There is, however, one exception: high deductible health plans with a savings option (HDHP/SO) such as a healthcare savings account (HSA). High-deductible plans with HSAs are significantly less expensive than any of the alternatives.

In this post we won’t go into an elaborate explanation as to why, but suffice it to say that of all the plans mentioned HDHP/SOs are those best able to harness market forces and give patients and their physicians a real incentive to ask questions, compare prices and minimize expenses. (See this post by John Goodman for an excellent review of these types of policies and savings accounts.) Indeed, some of the very organizations applying for CO-OP funds – such as the Freelancer’s Union – sell large numbers of HDHP/SO policies. Indeed, it’s one reason why Freelancer’s founder and CEO Sara Horowitz is able to claim that her plan’s rates are “40 percent cheaper than the competition yet the plan still reported surpluses the past two years.”

Here’s the rub. Lower cost HDHP/SOs are the one type of health insurance coverage that is virtually, but covertly, “outlawed” by the ACA. This is not done directly, of course, but indirectly by having the folks at HHS interpret the law in a way that will make these types of plans far more expensive to offer. Avik Roy explained this in a recent post:

It all hinges around a technical term called “actuarial value.” Actuarial value is an insurance concept that defines, on average, the fraction of costs that a particular insurance plan will cover, versus requiring the beneficiary to pay directly. For example, a health insurance plan with an actuarial value of 70 percent would, on average, require its beneficiaries to directly pay 30 percent of the covered health expenses, through co-pays, deductibles, and the like. The rest would be paid indirectly, through the insurance premium.

The problem is that health savings accounts aren’t really compatible with conventional “actuarial value” calculations. If you have a consumer-driven health plan consisting of high-deductible insurance and a health savings account, and you don’t count the HSA as a “health expenditure,” the actuarial value of your plan could be extremely low. On the other hand, if HSA savings are counted as a form of health spending, the actuarial value of your plan could be quite high.

As usual, under our new health law, the government gets to decide these things on our behalf… “The guidance is a mixed bag,” says Ramthun. The HHS guidance does allow employers to include the contributions they make to health savings accounts or health reimbursement accounts (HRAs). But contributions that individuals make into their own HSAs or HRAs won’t count. That’s particularly harmful to people who buy insurance for themselves on the individual market.

“This will make it much more difficult for high deductible plans to meet the minimum actuarial value standard of 60 percent,” says Ramthun. “If they can’t, these plans will either not be available, or these plans will have to raise their values by covering additional benefit expenses. This in turns means the premiums will have to be increased to cover the additional expenses, meaning HSA plans will not be as affordable as they are today.”

Ironically, as all this is happening, a group of credible analysts went ahead and published a study in Health Affairs about the potential impact of HSA-related HDHPs entitled: “Growth of Consumer-Directed Health Plans to One-Half of All Employer-Sponsored Insurance Could Save $57 Billion Annually”. As the title suggests, this would be the equivalent of a 4% decline in total healthcare spending for the non-elderly. The financial impact would roughly double in the percentage of HSA-related coverage were increased to 75% of employer policies. That would be more than a $1 trillion savings over ten years. Will these findings have any impact on HHS policy toward HDHP/SOs under the current administration? We doubt it. As we’ve said in a previous post, managing U.S. healthcare policy has become the domain of “religion” rather than thoughtful and sustainable planning.

None of this is good news for either the U.S. taxpayer (who are faced with record deficits their children and grandchildren will be expected to repay) or the millions of Americans who are already struggling to be able to afford health insurance. Based upon the objective evidence, there is no reason to think that CO-OP coverage is going to be any less expensive than anything currently available, or that the policies involved will be any more viable than Group Health Cooperative of Eau Claire, Wisconsin. Instead, the most likely outcome is one of billions of dollars in government funds that will be spent on grants and loans that generate little or no long-term benefit and will never be repaid.

This is evidence-based medicine?

As we keep saying – the road to Hellth is paved with good intentions.

Categories : Clinical Care, Economics, Ethics, Healthcare Policy, Political Hellth, Politics, PPACA, The Practice of Medicine, Uncategorized

Archive for Political Hellth

Mass Mandates Round 2 – Part II

Mass Mandates Round 2 – Part I

The Tragedy of the Supreme Court’s Affordable Care Act Ruling

Oregon’s Magical Thinking Meets CCO Reality

Ignoring Evidence-Based Medical Economics

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